German finance minister Peer Steinbrueck has put heavy pressure on the hedge fund industry by calling on the world’s richest nations to broker a strategy that will open them up to greater scrutiny.
Speaking at the G7 conference in Essen, Germany, Steinbrueck said the industry, which runs around 770bn worldwide, is too secretive and leaving hedge funds to their own devices could be disastrous for the world economy.
The G7 conference asked the international Financial Stability Forum to look into hedge funds and report back before the G7’s next meeting in May.
Its communique says: “Given the strong growth of the hedge fund industry and the instruments they trade, we need to be vigilant. The assessment of potential systemic and operational risks associated with these activities has become more complex and challenging.”
Around 70 per cent of European hedge funds are run from London while almost 90 per cent bank in London. Alongside New York, London runs the majority of the 900 hedge fund vehicles managed globally.
Steinbrueck insisted that the discussions were not targeted at the UK.
His comments come in the wake of German vice-chancellor Franz Muentefering’s comments that hedge funds were like “locusts”.
As a concept, hedge funds have a poor reputation in Germany following their role in forcing the transaction services platform Deutsche Borse to abandon its attempts to take over the London Stock Exchange.
Steinbrueck did not set out any possible proposals to improve the transparency of the vehicles, stating that while the benefits of hedge funds could not be called into question, there was a definite need to look at the “systemic risks” they can pose.
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